A New Short ETF

The Street.com reports that ProShares is launching another inverse Exchange Traded Fund:

The ProShares Short 20+ Year Treasury(TBF) is set to track the Barclays Capital U.S. 20+ Year Treasury Bond Index, an underlying index used for successful traditional funds. Investors may be temped to believe that a “single” inverse Treasury fund like TBF would be less risky than other types of leveraged funds. The recent shakedown in the leveraged ETF business has taught investors otherwise. TBF, like other leveraged fund strategies, is a daily tracking ETF that is appropriate for sophisticated investors.

ETFs do not necessarily have the qualities of the securities that they track. While the market for treasuries is typically highly liquid, there is no guarantee that TBF will garner enough investor attention to offer ample liquidity. It is likely that the leveraged used by TBF will also make this fund more volatile than the Treasuries it tracks.

TBF’s strategy isn’t based on shorting the 20+ year Treasury bond index, as the name of the ETF might suggest, but on owning instruments that provide a return that would be “like” shorting the index. This important difference impacts the risk and fees involved in investing in these non-traditional strategies.

Buyer beware. My recommendation is to never ever jump on any new offering no matter how tempting it may appear. My personal rule is to let any newly issued ETF accumulate pricing over the next 9 months to a year, so that a long-term trend can be easily identified. Additionally, I can at that time also chart the underlying index against the new ETF to identify any weaknesses in respect to their inverse relationship.

And last not least, a year from now, I can clearly see how daily trading volume has developed to make sure that this ETF is in fact in survival mode.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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